8point3 Energy Partners' Dividend Keeps Marching Higher

The dividend is up, but with earnings on the way, the bigger news may be ahead.

Travis Hoium
Travis Hoium
Jun 28, 2017 at 5:52PM
Energy, Materials, and Utilities

8point3 Energy Partners (NASDAQ:CAFD) increased its dividend by 3% on Monday, announcing a $0.2642 quarterly distribution for the second quarter, payable on July 14, 2017. The increase is exactly what management guided after the last quarter and keeps the company on pace for a 12% dividend increase this year. 

The dividend increase in and of itself isn't surprising, but it keeps the company on a good path ahead of earnings. And any increase in confidence in 8point3 Energy Partners' performance in 2017 could help the stock's continued recovery from lows a few months ago. 

First Solar installation in the desert.

Image Source: First Solar.

The juicy dividend grows

Despite 8point3 Energy Partners' shares rising 23.6% in the last two months, the stock still yields 7% right now. Management has also said it has enough projects to maintain a 3% increase in the dividend the next two quarters. 

That's what we know right now. But dividend growth for 2018 is uncertain (which I'll cover in a second) and there's First Solar's (NASDAQ:FSLR) desire to sell its stake in the yieldco looming. If a buyout takes place the stock could surge, but if 8point3 Energy Partners stays public, it could have a difficult road ahead.

Why a higher dividend is a challenge for 8point3 Energy Partners

The challenge 8point3 Energy Partners has run into this year is that its dividend is too high to buy more projects from its sponsors First Solar and SunPower. Yieldcos hope to issue new shares and debt to buy projects and if the cost of capital is too high, they can't buy projects that will add to the dividend long term. In 8point3 Energy Partners' case, a 7% dividend is probably too high to buy projects from sponsors this year. 

First Solar has said that it doesn't expect to drop projects down to the yieldco, saying it can get better prices elsewhere. And unless the stock rises to a level that leads to a dividend yield below 6%, I don't think it will buy projects this year. That'll make it tough to raise the dividend in 2018 and beyond as well. Maybe investors should enjoy the dividend increases while they can. 

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What to look for in the second quarter

Besides the dividend increase, 8point3 Energy Partners is reporting earnings on Thursday, June 29, after the market closes. Guidance is for $14.0 million to $16.0 million in revenue, $24.0 million to $26.5 million in adjusted EBITDA, and $15.0 million to $17.5 million in cash available for distribution. 

Since production of solar energy is variable, management explained last quarter that its guidance is based on projections that it has a 90% chance of hitting. That naturally means that long term the company will beat guidance each quarter, which it has done since going public. So, don't be surprised if it beats expectations again in the second quarter.